Jobs Front and Center in Coming Week

Updated from 02/27/10

NEW YORK ( TheStreet) -- Investors will turn the calendar another page in the coming week, but their focus will be on the same old thing: whether the U.S. can finally capture the elusive jobs growth needed to boost confidence in the sluggish recovery.

Stocks managed gains in February, despite sovereign debt fears in Europe and concerns due to uncertainty about the economy. The Dow Jones Industrial Average gained 2.6% during the month, as the S&P 500 added 2.9%. Jitters about Greece's debt and eurozone difficulties may linger into the coming week.

But the nonfarm payrolls report by the Labor Department, due Friday, looms large, as the nation's labor market struggles remain the economy's sticky wicket.

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Lawmakers and regulators turned their gaze more intently on the problem this past week. The Senate passed a $15 billion jobs stimulus bill. Among other items, the package included a social security tax exemption on each new hire for the rest of the year. In his testimony to the House Financial Services Committee on Wednesday, Federal Reserve Chairman Ben Bernanke also said labor market woes remain a headwind in the face of a sustained recovery.

Firms managed to bypass hiring by cutting costs and boosting productivity in recent quarters, meaning employers have learned to do more with less. But there's a feeling that payrolls have been cut to the bone. Many agree any uptick in jobs, and subsequent hike in consumer spending, will need to lead growth going forward. And that thesis has ramifications for investors' psyches.

"We need to see an improving employment number," said Michael James, managing director at Wedbush Morgan Securities. "Until we start seeing the employment number getting better, my opinion is that we will remain in a trading range."

James' sentiment is illustrated by the market's muted reaction to some positive economic news Friday. While the economy grew more than originally estimated in the fourth quarter , it was an improving inventory picture, not consumer spending, that led the uptick. In other words, until the labor market improves, traders will have difficulty trusting any positive trends.

And job market improvement has been elusive. The Labor Department already said employers shed 20,000 jobs in January. Even more disturbing, the volume of long-term unemployed, or those who have been out of work for 27 weeks or more, stands at a whopping 6.3 million. On the other hand, the nation's unemployment rate fell to 9.7% after touching 10% in the month before.

Early consensus estimates for the February jobs report show the Street expects much of the same. Analysts think nonfarm payrolls probably dropped another 20,000, while the rate likely edged higher to 9.8%. James expects hesitancy and weak trading volumes in the days leading up to the report.

Separate readings on personal income and spending, auto sales, construction spending, manufacturing activity, retail sales and productivity rates are also due next week.

But Phil Orlando, chief equity market strategist at Federated Investors, says seasonality issues will keep him from reading too much into any of next week's economic releases. Snowy, blizzard-like conditions over the past weeks and a homebuyer's tax credit extension in the fall probably weighed on this past week's consumer confidence and home sales numbers. Orlando warned interpreting next week's data may be similarly treacherous.

"You've got a period here in the winter months that because of the hangover from the moving of the credit and normal seasonality and the impact from this extreme weather, that a number of data points are coming in very weak," he said. "We may not see great numbers next week, or even for the month of March, as it's reflecting these February trends because of these issues. So, I'm almost inclined to go on vacation for the next month and come back in April to see what March's numbers look like, when we hope to get some return to normalcy."

"While these numbers are circled on my calendar because they're going to be important, I'm almost afraid of how bad they're going to be because of these extraneous issues," Orlando added. "And as a result, I'm kind of concerned about how the market is going to respond if they don't have this read-through perspective in terms of the bigger picture."

The Fed is also scheduled to release its Beige Book, an anecdotal assessment of current economic conditions, on Wednesday at 2 p.m. EST.

Next week's earnings slate will be devoid of heavy-hitting names. Still, the retail sector will be in focus, with reports from Dillard's ( DDS), BJ's Wholesale ( BJ), Costco ( COST), Big Lots ( BIG), Foot Locker ( FL), Urban Outfitters ( URBN), Dress Barn ( DBRN) and Staples ( SPLS).

Tech firms Marvell ( MRVL) and Ciena ( CIEN) are set to report, alongside solar names like Solarfun Power ( SOLF), Canadian Solar ( CSIQ) and Suntech Power ( STP).

Fast food names Wendy's Arby's ( WEN) and Domino's Pizza ( DPZ) will join them in releasing fourth-quarter results.

--Written by Sung Moss in New York